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Barnes and Noble Retail Split?

Written By Briton Ryle

Posted March 1, 2013

The Barnes and Noble (NYSE: BKS) book retailer is turning another page. As new technologies continually reshape the shopping landscape by the year, it seems, even the trees need to grow legs and move themselves when their time comes.

But for Barnes and Noble chairman Leonard Riggio, the move is not toward the new technology—but away from it.

“Barnes & Noble Inc (BKS.N) said its chairman, Leonard Riggio, plans to make an offer for the company’s bookstores, a deal that would result in splitting them off from the company’s Nook device and e-book business,” Reuters reports.

Riggio has built Barnes and Noble into the largest brick-and-mortar book retailer, starting with just one store back in the 1970’s. But since then, online book retailer giant Amazon (NASDAQ: AMZN) and an endless jungle of smaller retailers have made book buying lazier, stealing business from physical stores.

“Earlier this month,” informs Dealbook of the New York Times, “the company’s retail unit reported a 10.9 percent drop in holiday sales.”

Despite lower sales, the book stores are generating cash for the retailer. The problem is that much of that cash was diverted to launching its own e-reader, the Nook, which is still siphoning.

As Reuters announced:

“Earlier this month, Barnes & Noble said the loss from the Nook business would probably be bigger than expected in fiscal 2013 ending April 28 and that sales for the year would fall short of the $3 billion it had forecast.”

“Revenue from Nook businesses fell 12.6 percent from a year earlier in the nine weeks ended December 29, even as Amazon reported rising sales of Kindles and e-books…”

Though the chain’s founder offered to buy the book stores, he does not include the various components of Nook Media—such as the college bookstores, the Nook e-reader device, or its e-books. One possible reason could be that Nook Media will ultimately be split from the Barnes and Noble chain all together.

Although Mr. Riggio’s intensions and ultimate long-term plans for the book chain are not publicly known, this could be a classic case of a “return to basics” and “do what you do best”.

The Nook e-reader and its e-books have steadily lost market share to Amazon’s Kindle and Apple’s (NASDAQ: AAPL) iPad since launched in 2009. And the company warned that the division’s next reported losses will be greater than expected.

As Dealbook explains, “Analysts said that a separation of the company’s businesses could make sense. Supporting the enormous costs of Nook Media has long weighed on the retail arm, and eliminating that could help profitability.”

“This would allow the focus to go back to retail.” Reuters quotes Morningstar analyst Peter Wahlstrom. “Nook is definitely a distraction – it sucks out all the profits.”

And this sits well with investors, as the company’s shares surged up 11.5% on Monday’s news of Riggio’s plans, lifting the company’s value to just over $900 million.

As for sticking with just the book stores themselves, Riggio may not be simply clinging to his nostalgic beginnings. There is still money to be made there. Those who say that book stores are going the way of the dinosaurs are overlooking a few things.

“Book publishers said that they welcome any move that would keep Barnes & Noble afloat, which would give them some negotiating leverage with Amazon over book prices,” Dealbook points out.

David Steinberger, CEO of Perseus Books Group, emphasized an important value of bookstores. “Publishers and the public benefit from a healthy competitive market with many choices for readers who want to buy books in print or digital form,” he affirms. “Given the volatility of the public markets, taking this kind of business private will be a positive step for publishers and readers.”

Before closing the book on the good old fashioned book store, remember that there is one thing a neighborhood shop offers that you simply cannot get online—the book touching experience.

“Physical bookstores serve as a crucial way for readers to decide on new titles,” Dealbook summarizes.

Indeed, book readers don’t just like reading books; they like books period. They like the look of books, the feel of books, and that physical connection to another land in another time encapsulated within their covers.

Every time some avid readers pick up books, they get a rush of excitement and wonderment that comes from holding an entire world of ideas and emotions in their hands. Their auras excite with energy in anticipation of voyaging into a multitude of abstract universes, as they open one cover after another and take cosmic leaps through those portals in their palms.

You just don’t get that from a digital screen.

Joseph Cafariello